For informational purposes only.
A secured loan is backed by collateral — a car, your home (HELOC), a GIC, or even cash on deposit. Because the lender can seize the asset if you default, they take less risk and offer lower rates. A car loan at 6% or a HELOC at prime + 0.5% are typical secured loans.
An unsecured loan has no collateral. The lender's only protection is your credit score and income, so rates are higher — typically 8% to 18% for personal loans in Canada in 2026. Credit cards are technically unsecured loans with much higher rates (19–22% on most cards).
If you're new to Canada and building credit, our credit-building guide covers how to qualify for better rates over your first 12–24 months.
Most personal loans in Canada are "open" — you can pay them off early without penalty. Mortgages and some auto loans are different. They often allow 10–20% annual prepayments without penalty, but anything above that triggers an Interest Rate Differential (IRD) penalty that can run into thousands. Always read the prepayment clause before signing.
If your loan allows it, even small extra payments hurt total interest a lot. On a $25,000 loan at 7% over 60 months, throwing an extra $50/month at the principal cuts about 6 months and $400 in interest off the loan. Try it — change the term and see.
A fixed-rate loan locks your interest rate for the whole term. Your monthly payment never changes. Variable-rate loans move with the prime rate. When prime drops, your payment shrinks (or more goes to principal); when prime rises, it grows.
Personal loans are almost always fixed. Variable rates are more common on mortgages and HELOCs. For a deeper comparison see our mortgage calculator, which models both fixed and variable amortizations side by side, or project the same monthly payment as savings using compound interest.